Oil Prices Drop

The biggest movement in mortgage markets this week took place after the announcement of a temporary ceasefire in the conflict in the Middle East. Oil prices fell, and mortgage rates followed suit. Two major inflation reports were close to expectations and caused little reaction. As a result, mortgage rates ended the week a bit lower.

News of a two-week ceasefire caused oil prices to decline sharply on Wednesday. This reduced future inflationary pressures, which was positive for mortgage rates. Concerns about the durability of the ceasefire increased later in the week, however, reducing the initial impact of the announcement.

The Consumer Price Index (CPI) is one of the most closely watched inflation indicators released each month, and investors were braced for the effects of the huge rise in oil prices in March. CPI surged a massive 0.9% from February, the largest monthly increase since June 2022, but matching expectations. CPI was 3.3% higher than a year ago, up substantially from an annual rate of 2.4% last month and the highest level since May 2024. 

Fed officials keep a close eye on inflation, and the PCE price index is their favored indicator. One of the significant differences with CPI is that PCE places more weight on health care costs and less on shelter. Delayed by the government shutdown, the latest report revealed that Core PCE in February was 3.0% higher than a year ago, down from an annual rate of increase of 3.1% in January and matching the consensus forecast. Progress toward the 2.0% target of the Fed has not been easy, and this desired level has not been achieved since February 2021.

Looking ahead, attention will remain fixed on the conflict in the Middle East. Investors also will monitor comments from Fed officials about future monetary policy. For economic data, Existing Home Sales will come out on Monday. The Producer Price Index (PPI), a monthly inflation indicator, will be released on Tuesday. Import Prices will come out on Wednesday.